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Section 251.
This section establishes United States currency as
the legal tender of the FAS, but gives each FAS the option to
issue its own currency; in which case appropriate transitional
arrangements would be agreed upon.
Segtion 252.
This section recognizes the jurisdiction-of the FAS
to tax any United States persons income which is derived from FAS
sources, and applies United States tax laws to determine income
source.
Section 253.
All FAS citizens domiciled in the FAS will be exempt
from United States income tax on fixed and determinable income and
inheritance and gift taxes.
It is intended that questions of
citizenship and domicile for individual persons in the FAS will be
determined under the laws of the respective FAS (See Section
142(a) of the Compact).
Section 254.
Persons who reside in the FAS will not have to pay
any otherwise applicable United States tax on income which is
taxed by the FAS, even where such income is derived from sources
outside the FAS.
Section 255.
While Sections 253 and 254 are intended to provide
incentives for immigration to and investmennt in the FAS for
individuals, this Section provides tax incentives for investments
primarily by corporations.
The tax incentives provided are those
long-standing provisions of the United States Internal Revenue
Code applicable to possessions of the United States that were
designed, like the tax provisions of the Compact, to generate
United States investment in developing areas that enjoy a special
relationship with the United States.
These incentives, as in
effect on January 1, 1980, will apply to the FAS to the extent not
in conflict with Compact Sections 253 and 254.
If the provisions
of the Internal Revenue Code applicable to the FAS under this
Section are amended after January 1, 1980, the prior law will
continue to apply for two years after the effective date of such
amendment while alternative but equivalently beneficial tax
arrangements are negotiated.
TITLE THREE
SECURITY AND DEFENSE RELATIONS
Article I, Authority and Responsibility
Section 3ll.
This section establishes as part of the free
association relationship defined in the Compact the full authority
and responsibility of the United States for security and defense
Matters in or relating to the Marshall Islands and the Federated
States of Micronesia.
This United States authority and responsiblity includes the foreclosure of any third country access to the
FAS for military purposes, and the ability to establish military
facilities and the exercise of military operating rights in